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Be Aware Of What Scammers Are Up To

Author: Jenny Shilling

Every year the IRS posts their list of "Dirty Dozen" Tax Scams.  It's sad to say but the list doesn't change very much from year to year.  In order to avoid being a victim of scams this tax season, please remember that the IRS will ONLY contact you using the United States Postal Service.  They do not use email or the telephone to contact individuals about their tax returns.

At The Tax Office, Inc., we hope that you will find this list helpful in preventing tax scams.

1. Phone Scams – Criminals impersonate IRS agents and threaten taxpayers with arrest, deportation or license revocation in order to steal the taxpayers’ identity.

2. Phishing – Fake emails or websites are used to steal personal information. The email may attempt to gain access to your personal information. Koskinen emphasized that the IRS does not email taxpayers about a tax bill or refund.

3. Identity Theft – Criminals continue to steal Social Security numbers and attempt to e-File and obtain an early tax refund.

4. Return Preparer Fraud – Unscrupulous return preparers may be involved in refund fraud or identity theft.

5. Offshore Tax Avoidance – It is unlawful to hide money and income offshore. The IRS Offshore Voluntary Disclosure Program (OVDP) may help you get your taxes in order.

6. Inflated Refund Claims – Do not sign a blank return or have your tax return prepared by someone who bases their fees on a percentage of your refund.

7. Fake Charity – There are individuals who claim to represent a charitable organization and solicit donations. You should check to be sure that your gifts go to legitimate charities that qualify for a deduction.

8. Fake Documents – Some individuals attempt to hide income by filing a false Form 1099 or other documents. A taxpayer is responsible for paying his or her tax, regardless of who prepares the return.

9. Abusive Tax Shelters – There are complex tax avoidance schemes that sound “too good to be true.” You should seek advice of a qualified advisor before using any aggressive tax strategy.

10. Inventing Income to Claim Credits – Some taxpayers have claimed increased income in an effort to qualify for the earned income tax credit.

11. Fuel Tax Credits – The fuel tax credit for off-highway business use, such as farming, can be used to apply for an improper tax refund.

12. Frivolous Tax Arguments – Various promoters have urged taxpayers to make unreasonable and outlandish claims. These claims have regularly been held invalid by the courts and tax protesters have suffered substantial penalties.

If you believe you have been contacted by someone perpetuating a scam, you should report it to the IRS. 

To report promoters of these scheme types or any other types you are aware of that are not listed here, please send a completed referral form, along with any promotional materials to the Lead Development Center:

Mail:
Internal Revenue Service Lead Development Center
Stop MS5040
24000 Avila Road
Laguna Niguel, California 92677-3405

Fax: (877) 477-9135

Keep This, Not That—Which Documents Should You File and Which Should You Shred After Tax Season?

 Author: Jenny Shilling

If there’s one time of the year that may inspire you to finally come up with a filing system for all of your bank statements, receipts and other important documents, it’s tax season. Not only will keeping your documents organized make it easier and less stressful for you to find what you need on a daily basis (and when you are getting ready to have your taxes prepared), it will also ensure that if something happens to you, your loved ones will be able to quickly find essential information about your finances and other relevant items.  

 One of the major challenges that many people encounter when they start going through their documents is knowing what they should keep and for how long. The following list from Consumer Reports may help you determine what to keep and what to toss (remember to shred all sensitive documents before you put them in the recycling bin or trash) once tax season is over:

 Documents to keep for a year or less

• Bank records: Keep deposit and ATM receipts until you reconcile them with your monthly statements. File your monthly checking and savings account statements. After you do your taxes, file any statements needed to prove deductions with your tax records; the rest can be shredded.
• Credit-card bills: Shred them after you've checked and paid them, unless you need a bill to support a deduction you'll be taking on your taxes, such as for a charitable donation (in which case you'll need to file the bill with your current-year tax records).
• Current-year tax records: Keeping your records organized can save you headaches and money at tax time. Place documents you'll need for your next return in a file.
• Insurance policies: Keep policies that you renew each year, such as those for your home, apartment, or car, until you get new policies, then shred the old ones.
• Investment statements: You can shred your monthly and quarterly statements from brokerage, 401(k), IRA, Keogh, and other investment accounts as new ones arrive. But hold on to annual statements until you sell the investments.
• Pay stubs: Keep the calendar year's records until you reconcile them with your annual W-2 form, then shred them.
• Receipts: If you're not doing anything with your receipts—like tracking your spending, itemizing tax deductions, or using them to return purchases—you don’t need to keep them.

 Documents to keep for at least a year

• Investment purchase confirmations: You will need these to establish your cost basis and holding period when you sell investments. If this information appears on your annual statements, you can keep those instead of quarterly or monthly statements. Store the records until you sell the investments, at which time you should move the back-up records into that year's tax-return file.
• Personal federal and state tax returns and their supporting records: These documents must be kept for at least seven years. Remember, your returns can be audited by the IRS up to three years after the date you filed the return. If you fail to report more than 25 percent of your gross income, the government has six years to collect the tax or start legal proceedings—and you can be audited at any time if the IRS suspects you of fraud.

• Loan documents: Keep closing documents for mortgage, vehicle, student, and other loans in a safe-deposit box. You can dispose of them after the loan is paid off.

 Documents to archive for seven years

•  Tax records: If they are more than seven years old, tax records can be stored—or even better scanned—for your records.

 Documents to keep indefinitely

• Essential records such as birth and death certificates, marriage licenses, divorce decrees, Social Security cards, and military discharge papers should be kept in a safe-deposit box.

• Permanent life insurance: Policies that have a cash value or investment component—keep documents and a list of the companies that issued them and their phone numbers in your safe-deposit box. If you have a term life policy, hold the documents until the term is over, then toss them.
• Pension-plan: Documents from your current and former employers and estate-planning documents including wills, trusts, and powers of attorney should also be stored in your safe-deposit box.

 If you’ve already instituted a filing system for your key documents, kudos to you. If you haven’t, now is the perfect time to do so. If you have any questions about which financial records you need to keep or which ones you can safely dispose of, please let us know, we are happy to help.

Types of Tax Credits that can Reduce your Tax Bill

Author: Jenny Shilling

Tax credits can make a significant effect on your Federal income taxes. A tax credit is a dollar-for-dollar credit. If you qualify for a $500 tax credit, $500 will be taken off your tax bill. In comparison, a tax deduction only reduces your tax bill by the percentage of your marginal tax bracket. There are two types of tax credits available, refundable and non-refundable. Most tax credits fall into the latter category.

Refundable Tax Credits

These credits are treated the same as a tax payment. A refundable credit is subtracted from the amount of taxes you owe after deductions. These credits can reduce your tax liability. If the total tax liability is below a zero amount, the difference will be returned to you as a tax refund.  If you happen to already be receiving a tax refund, this amount will be added to it.

Examples of refundable tax credits:

• Additional Child Tax Credit
• Earned Income Tax Credit
• Health Coverage Tax Credit
• Small Business Health Care Tax Credit

Non-Refundable Tax Credits

These tax credits are subtracted from your tax bill up to the amount you owe. A non-refundable tax credit cannot reduce your bill past a zero balance.

Examples of non-refundable tax credits:

• Adoption Tax Credit
• Child Tax Credit
• Foreign Tax Credit
• Mortgage Interest Tax Credit

Partially Refundable Tax Credits

There are some credits that fall into both categories. The American Opportunity Tax Credit is a partially refundable credit. If this credit reduces your liability past zero, you can receive up to 40% (up to $1000) as a refund.

Because tax law changes from year to year it is important to do research and planning prior to filing your tax return. Hiring a qualified tax professional will ease your burden as they are trained in the yearly modifications.  If you have any questions regarding your taxes, credits, or deductions please contact us. The Tax Deadline is rapidly approaching and our specialists are available to provide the answers you need.

It's That Time Again!

Author: Jenny Shilling

December is here and time is passing quickly. Sooner than you know it, April 15th will be here. Now is the time to start organizing your tax information. Here are some tips to ease the process:

• What is your filing status? Did you marry or divorce? Has the stork dropped off any bundles of joy this year? Any big change to your life can dramatically change your filing status.
• Receipts! If you made any significant donations to charity you will need to have documentation. Did you engage in any business travel or entertainment? The IRS requires documentation to back up any deductions in this area. Your smartphone can help you keep track of your receipts.
• How did you file last year? Did you have your taxes prepared by a qualified tax professional or did you file them on your own. While using a qualified tax preparer may cost you a it in the short run, they are up to date on tax changes and can save you more in the end.
• Tax payments - when taxes are due in April you certainly don't want to be accruing penalties and interest. To make tax payments easier start setting money aside from your paychecks. This way when April gets here you will be prepared.

What Deciscion will Congress Make?

Author: Jenny Shilling

At the end of 2013 many tax breaks expired. It is now up to Congress to decide which ones, if any, they are going to modify, extend, retroactively extend, or if they are going to leave things alone.  While most people think businesses are the most impacted, changes in the tax code can also affect the individual taxpayer. Here are some of the most popular tax breaks for individual taxpayers that expired in 2013:

Deducting State & Local Taxes - In 2013 you had the option of claiming an itemized deduction for general state and local sales tax instead of claiming an itemized deduction for state and local income taxes.

IRA Charitable Donations -  If you reached age 70 1/2 by the end of December, 2013 you had the ability to make donation sof up to $100,000 directly out of your IRA.  These donations counted as your required minimum distributions for your IRA.

Forgiven Principal Residence Mortgage Debt - Normally cancelled debts count as taxable cancellation of debt income. A temporary provision allowed up to $2 million of canceled debt income frim principal residence acquisition debt that was cancelled between 2000 and 2013 to be treated as a tax free item.

Energy Efficient Home Improvements - In 2013 you were able to claim a credit of up to $500 for very specific energy saving improvements made to your primary home.

Higher Education Tuition - In 2013 you could deduct up to $4000 dependent upon your tax bracket, for qualifying higher education tuition and related fees.

It is possible that these expired federal provision will be retroactively reinstated. However, there is no way of knowing what decision will be made by Congress. The tax planning specialists at The Tax Office, Inc., are closely monitoring the situation and will advise you once Congress makes a decision. Contact us today should you have any questions.

Tax Implications from this Life Changing Purchase...

Author: Jenny Shilling

Tired of paying rent to someone else and getting nothing in return? Getting ready to make that first home purchase? Buying a home, whether it's your first or fifth, will have an impact on your taxes. Luckily there are several tax deductions available when you make that purchase.

• Mortgage Interest
  When you pay rent for a house or an apartment you are helping someone else make their mortgage payment. When you make your own mortgage payment the IRS allows you to deduct the interest included in your monthly payment. At the beginning of your loan period the amount of interest you pay is at its highest level. Claiming the mortgage interest deduction may result in a larger tax refund for you at the beginning of your loan period.
  
  To make this claim you will need to itemize your deductions. You will not be able to use the standard deduction for your return.  You will receive a form 1098 at the end of the year from your loan provider detailing the amount of interest you have paid throughout the year.
• Property Taxes
  Most times your property taxes have been included in your monthly billing. The amount of property tax paid can also be deducted as part of your itemized deductions
• Home Office Deduction
  If you plan on using a portion of your home as a home office you may be able to make some additional deductions. Eligible deductions for a home office include utilities, home repairs, and internet expenses.  You must use your "office" exclusively for work to qualify for any home office deductions.

Beware of Imitation IRS Agents

Author: Jenny Shilling

Have you recently received a telephone call from someone claiming to be from the IRS?  Chances are it's a scam.  Con artists are using the telephone to demand money from unsuspecting people by claiming they are from the IRS.

The fake IRS representatives tell the person who answer the phone that if they don't pay up immediately, they could have their driver's license revoked or even face jail time. With this type of threat looming, a lot of people act out of fear and comply with this demand.

Through mid-August, the Treasury Inspector General for Tax Administration, or TIGTA, has received around 90,000 complaints about the scam-IRS calls via its own telephone hotline. More than 1,000 of those who were contacted believed the con artists and handed over an estimated $5 million, according to the IRS.

To avoid becoming a victim of these scams, you should know:

• The IRS will first contact you by mail if you owe taxes, not by phone.
• The IRS never asks for credit, debit or prepaid card information over the phone.
• The IRS never insists that you use a specific payment method to pay your tax.
• The IRS never requests immediate payment over the telephone.
• The IRS will always treat you professionally and courteously.

If you get a phone call from someone claiming to be from the IRS, here’s what you should do:

• If you know you owe taxes or you think you might owe taxes, call the IRS at 800-829-1040. IRS employees can help you with a payment issue if you owe taxes.
• If you know you don’t owe taxes or don’t think that you owe any taxes, then call and report the incident to TIGTA at 800-366-4484.
• If cons have tried this scam on you, you should also contact the Federal Trade Commission and use their “Complaint Assistant” at FTC.gov. Please add "IRS Telephone Scam" to the comments of your complaint.

Will your Teen's Summer Job Affect Your Taxes?

Author: Jenny Shilling

Summer is almost over, and with its end comes the end of summer jobs.  Having received paychecks for the first time was probably very exciting for your teen, until he or she learned just how much they would have to pay in taxes.  How much did your teen earn? Does the summer employment affect whether or not you can claim your teen as a dependent? Are there any child related tax credits you might lose because of their employment?

Many things change when your children start working. Let's look at the tax impact since those are clearer and certainly more readily explainable than other changes with our teenagers.

1. Filing Requirments. There is a minimum filing requirement. Dependent children have to file a tax return if they earned income of more than $6,200.  There are also other filing requirements based on gross income, which include items such as dividends and interest.
2. Do I claim their income? Your teen is required to file his or her own taxes if the child is working or receiving income other than interest and dividends.
3. Teens Owing Taxes? A good rule of thumb for your working child is to claim zero exemptions on their W-4 to ensure they have enough taxes withheld so they don't owe money to the IRS come tax time.
4. Still a Dependent? Your dependent child can have any amount of income and still be claimed as a dependent as long as they do not provide more than half their own support: gifts, entertainment, food, shelter, clothing, purchasing a vehicle, maintaining a vehicle, other forms of transportation and school expenses.  If your child can be claimed as a dependent on your tax return, they cannot claim their own exemption.
5. Child Tax Credit? Each dependent child under the age of 17 can qualify you for the $1,000 per child tax credit. The credit is available to you even if your child is working and paying taxes on their income.

For questions regarding your tax return, or your child filing for the first time, please contact a qualified tax professional.  The specialists at The Tax Office, Inc., are availble to field your questions.  Contact us for a no cost, no obligation discussion of your tax situation.

Married Filing Joint or Married Filing Separately - Which is the Best Choice?

Author: Jenny Shilling

The federal tax code, as you may know, gives benefits to those who file as "Married Filing Joint."  With the recent changes regarding same-sex marriages, it seems important that we discuss your filing status and how it can affect your taxes.

Under federal law, if you are legally married you have the choice of filling in one of two ways:  Married Filing Joint or Married Filing Separately.  For Federal tax purposes, you are considered married if on the last day of the year you are married and living together. This filing status includes common law marriages that are recognized in the state where you now live or in the state where the common law marriage began. Even if you are living apart, on the last day of the year you are considered married if there is no legal decree of divorce or separate maintenance. If you are divorced under a final decree by the last day of the year, you are considered unmarried for the whole year.

If you should choose to file as Married Filing Separately (MFS) there are a few  limitations that you may wish to consider:

Married Filing Separately (MFS) taxpayers may not be eligible to claim the following tax benefits:

• Deductions of tuition and fees
• Deduction of student loan interest
• Tax-free exclusions of US bond interest
• Tax-free exclusions of Social Security Benefits
• Credit for the Elderly and Disabled
• Child and Dependent Care Credit
• Earned Income Credit
• Education Credits

Other penalties/restrictions:

• When filing separately taxpayers have a much lower income phase-out range for IRA deductions.
• Both spouses must claim the standard deduction, or both must itemize their deductions. You cannot claim the standard deduction if the your spouse is itemizing.
• This filing status generally pays more in tax of all the filing statuses.

Filing status determines which standard deduction amount and which tax rates are used when calculating a person's federal income tax for the year. For 2014, a person who files as married filing separately can claim a standard deduction amount of $6,200.

Living in a community property state has its effects upon your taxes as well.  Community property states include: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. If you file separate returns in a community property state, you and your spouse must each report half of your combined community income and deductions in addition to your separate income and deductions. Each of you are required to complete and attach Form 8958 to your Form 1040 showing how you figured the amount you are reporting on your return. Be sure to list only your share of the income and deductions on the appropriate lines of your separate tax returns (wages, interest, dividends, etc.).

Should you have questions regarding your taxes or your filing status, The Tax Office, Inc. will gladly give assistance.  Our tax specialists are available by phone or email. Contact us today for a no cost, no obligation discussion of your tax status.